Kiwi News and Views

It is difficult to make sense of the Luxon Coalition Government’s economic management.

This end-of-year review about the state of economic management – the state of the economy was last week – is not going to cover the National Party contribution. Frankly, like every other careful observer, I cannot make up my mind.

Certainly Christopher Luxon and Nicola Willis are doing things, but there appears little coherence in what they are doing (after implementing the expenditure and tax cuts promised during their election campaign). The Post senior editors ranked the two’s performance in the bottom half of the cabinet. (The top rankers were Chris Bishop, Simeon Brown, Todd McLay, Mark Mitchell, Winston Peters and Erica Stanford; the Lambton Quay rule is that it is rare for more than five cabinet ministers to be outstanding performers.) We may see from the 2025 Budget Policy Statement (early next year) whether the government’s economic management is struggling with a contracting economy or just plain struggling.

Instead, this column focuses on ACT and NZF, the two wing parties in the Coalition Government who have quite different economic visions.

ACT was founded by neoliberals and on the whole has followed their approach. For instance, its election manifesto tried to slip into its Treaty Principles Bill a neoliberal reinterpretation of the second article of Te Tiriti based on the its account of property rights. Their approach was so anachronistic that the bill before Parliament has replaced it with something which is closer to what was the thinking at the signing.

However sometimes ACT policies can be puzzling. David Seymour is minister for Pharmac and announces major public funding initiatives. No doubt that goes down well with the public but it is unclear how greater public funding fits in with a neoliberal vision of a health system. A conspiracy theorist might argue that the cunning plan is that while the additional spending is not very effective, it chews up public healthcare spending which could be used more effectively (such as reducing waiting times and earlier prevention) and so drives people into the private healthcare sector and private insurance.

ACT’s Ministry of Regulation is even odder. It was to be funded by closing down the Productivity Commission, which was established as an ACT initiative during the Key-English Government. Presumably ACT’s thinking has shifted from the need for an independent assessment of the impact of government interventions to one which was more ministerially driven.

The Ministry is going to be about twice as expensive as the Commission. One reason is that it will be paying the highest remuneration in the public service. Seymour’s group working on charter school is also more generously remunerated than average. So much for the neoliberal vision of small government.

Even more strangely, Minister Seymour has chosen agricultural and horticultural products, Early Childhood Education (ECE) and hairdressing for the first regulatory reviews. One doubts that improvements there are going to make a lot of difference to economic performance. (The review of building regulations by National’s Minister for Building and Construction, Chris Penk, will have a far great impact, although it is to be hoped they will not repeat its mistakes which led to the leaky building saga.)

An even stranger story is that neoliberals in general and Seymour in particular have a passion for a Regulatory Standards statute. In Opposition they twice introduced a bill into Parliament – both times it failed – and plan to again. However, in an interim regulatory impact statement the Ministry of Regulation said that while it supports the overall objectives, the legislation isn’t needed. Its preferred option is to build on, and strengthen, an existing regime based on Labour’s legislation passed in 2019.

One is left with the uneasy feeling that, as with the Treaty Principles Bill, ACT is not showing any of the political skills that were so admired in the delivery of the End of Life Choice Act.

If ACT is the successor of Rogernomics, NZF is the successor of the economic management paradigm that it replaced. Yes, Winston Peters is Robert Muldoon’s successor. The media does not like Peters. Nor did they like Muldoon, both of whom treated them with belligerence. (In any case the Establishment is always uneasy with populists.)

While it is easy to criticise Muldoon’s second period as Minister of Finance (1975-1981), his first period (1967-1972) was widely admired. In the later period Muldoon was beset with economic problems which, he could not solve because of the politics. But the interventionist economic paradigm developed in the 1930s and 1940s had proved successful for four decades. (Not in Narrow Seas explains why it became obsolete, although it probably can be adapted.)

Peters made no great mark as Minister of Finance (1996-1998) but he adamantly rejected ‘neoliberalism’: ‘[t]he truth is that after 32 years of the neoliberal experiment the character and the quality of our country has changed dramatically, and much of it for the worse’. His occasional mention of economic issues – like at this year’s party conference – would be supported more by Muldoon than by Seymour.

This stance is reinforced by NZF’s number two, Shane Jones, who is the Minister of Resources (and Minister for Oceans and Fisheries and for Regional Development). Like Peters, he is a populist and belligerent towards the media. Jones may be overqualified for a politician, with enormous Māori mana and a Harvard degree, and having worked as a university teacher, a public servant, in commerce (including chairing the Treaty of Waitangi Fisheries Commission) and in diplomacy.

Jones left the Labour Party, where he had been a minister, in 2014 because it was not sufficiently committed to the private sector, but his promotion of the Fast Track legislation and other development initiatives shows that he is also highly interventionist. It is a mix which politicians from the pre-Rogernomics era would recognise. Fast Track is an example of the ‘think big’ approach which goes back to Julius Vogel over 150 years ago. (Muldoon gave the approach a bad name but previous programs had often been successful.) Think Big is anathema to the neoliberals.

Jones is an Associate Minister of Finance, as is Seymour (and National’s Chris Bishop), Willis being the minister. Economic policy discussions within the Luxon Coalition Government must be rather tense because while with Luxon, National has a majority, the politics of coalition enables both Jones and Seymour to wield a veto. Perhaps that it is why it is so hard to fathom what Luxon and Willis actually stand for.

By way of prologue, the closest parallel to the current economic situation may be when Ruth Richardson became Minister of Finance in late 1990. The economy had been contracting, although there were signs of a fragile recovery. She was an Austerian and cut public spending savagely.

The economy plunged a further 5% in GDP per capita terms. Unemployment rose to above 10% of the labour force. Richardson could claim she achieved her Austerian goal of lowering relative government spending.

But National only narrowly won the 1993 election (because the left was severely divided – this was before MMP). Richardson was sacked. While she could point out that the rate of inflation came down under her watch, it was not really her win. World inflation was falling and in any case, as the legislation she supported clearly states, inflation was the responsibility of the Governor of the Reserve Bank (then Don Brash) not the Minister of Finance. (Perhaps one should add that the National Government also suffered electorally from its attempt to commercialise the health sector.)

This is not to say that this will be the political fate of Nicola Willis, nor of the Luxon Coalition Government. But the memory of the effect of heavy cuts to government spending on a weak economy hangs heavily over today’s policy stance.

Treasury’s 2024 Half Yearly Economic and Fiscal Update (HYEFU) is due for release on Tuesday 17 December – an awkward time of the year, which precludes serious analysis published before Christmas. Helpfully on 21 November, Treasury’s Chief Economic Advisor, Dominic Stephens, gave an indication of what is likely to be in the macroeconomic forecasts – not the numbers, but the way they are shaping up.

He observed that the economy has been doing worse than the central forecast of May’s Budget Economic and Fiscal Update (BEFU), pointing out that since the September quarter of 2022, per capita GDP has fallen by 4.6%, making this already a larger per-capita recession than the Global Financial Crisis of 2008-10. Recent economic data suggests the downturn has been deeper, and the recovery will begin later, than the May BEFU forecast (which was already pessimistic compared to the December 2023 HYEFU):

– in the June quarter GDP fell 0.2%, compared to the Budget forecast of a 0.2% increase.

 – as of October, spending on electronic cards at retail stores remained 1% lower than a year ago.

– indicators of manufacturing and service activity remain at contractionary levels, suggesting little or no growth in the economy over recent months.

– Despite improvements in firms’ expectations of future trading activity, the Quarterly Survey of Business Opinion reported that firms are more pessimistic about their current trading conditions than they have been since 2009 (apart from the pandemic).

In fact the economy seems to have been tracking nearer the downside economic forecast which was also set out in BEFU2024. I look at two aspects of what this may mean: unemployment and the fiscal position.

Unemployment tells us something about the shape of the output (GDP) track although it tends to be a lag indicator. BEFU2024 had its rate at 4.0% of the labour force in December 2023, rising a third to 5.3% at the end of 2024 (about now). Then it was to fall sluggishly so that in December 2026 it would still be at 4.6%. There is no downside forecast for unemployment, but a reasonable guess is that it would have peaked near 7% sometime in second half 2025 and would be correspondingly higher about the time of the next election (even 6% in December 2026). Recall that after the GFC it took the economy almost five years to return to its previous GDP peak.

The fiscal forecasts are gloomy too. Treasury’s Chief Economist reported that ‘Treasury has been revising its revenue forecasts lower. Tax revenue has proven lower than expected given the state of the economy in recent economic and fiscal updates. … If this trend continues, there could be further downside risks to the Treasury’s revenue forecasts.’ One of his Associate Ministers, Chris Bishop, was less discreet, announcing that it is unlikely that the fiscal position will return to surplus by 2027/8 as forecast in BEFU2024.

The Treasury did not foreshadow anything about the public spending track. That is a ministerial prerogative; ministers are indicating they expect more public spending cuts. A group of 16 economists led by Ganesh Nana have argued there should be no more spending cuts or delays to infrastructural spending because they will ‘needlessly exacerbat[e] the current recession’. In effect the economists are arguing for a bigger government deficit – that it is not necessary to pursue as rigorously the debt-to-GDP target. Bishop may agree; he said the government was ‘not going to be a slave to a surplus’ (not mentioning one can get enslaved by debt). Prime Minister Christopher Luxon said ‘I’m not going to chase a surplus at all costs.’ We await HEFU2024 to learn the new date.

One should not quibble with public spending cuts whose purpose is to reduce over-staffing, while arguments about cuts of programs which the government does not like are political, although there will be technical consequences. The offset to this position is that the government should increase expenditure where there is under-staffing or on programs which it favours. The technical issue is whether the government should be cutting overall expenditure (or restraining it below population and related demands) to return to surplus. (There is a parallel discussion around raising taxes.)

What Nana et al. are arguing is that not only are such cuts unnecessarily harsh but they are compromising long-term economic growth. On the other hand, there are Austerians who think that the state sector is still too big and are using the crisis to cut it back. (The exception is that they prove to be big spenders in their own portfolios.)

This is likely to be a major debate from now to the next election. In the interim the economy is contracting and is likely to stagnate a bit before it recovers. I withhold an explanation until we have the detailed Treasury HYEFU2024.

How the Prospect Theory of Behavioural Economics Makes Economic Analysis Difficult

Behavioural economics has been described as the most revolutionary thing which has happened to economics for ages. The notion that people do not behave like ‘rational economic men’ (women are mainly ignored) undermines the microeconomic foundations of the subject. Not the empirical evidence on which economics is based – only its interpretation. It also impacts on normative economics, as this column explores.

I’ve written a number of pieces on behavioural economics (see here). This column explores the part known as ‘prospect theory’ for which Daniel Kahneman was awarded a Nobel laureateship in 2002 (as would have been his co-researcher Amos Tversky had he been alive). The theory unites three basic observations: people treat gains differently from losses (known as ‘loss aversion’); people place unequal weight on outcomes with certainty compared to those with uncertainty; and the structure of a problem itself may affect the choices made.

This column focuses on loss aversion, with an example of how it complicates analysis. Suppose a good quality cost-benefit analysis – they occur less frequently than they should – concludes that a project would generate an extra net $1 (add as many zeros as you feel necessary). Because the study is of high quality it also will set out winners and losers, finding perhaps that the winners receive a benefit of $3 and the losers $2 – giving the net aggregate benefit of $1.

Typically the economist is not allowed to tradeoff the winner’s gains against the loser’s losses, because that involves the political judgement of comparing people’s welfare; the profession has no particular expertise in interpersonal comparisons. In principle the tradeoff is left to politicians, although sometimes economists don a politician’s hat – without telling the public – and advocate one way or the other.

Some economists argue, using ‘Hume’s Law’ (David Hume would be embarrassed to be associated with it), that ‘a dollar is a dollar’ and favour the project since it adds a dollar to the economy. (There is also a complicated theory of ‘compensation’ which need not detain us here.)

What ‘loss aversion’ says is that different dollars have different values. Suppose you did not know you were a winner or loser but that your chances were half and half of being either. The empirical evidence is that, as a rule, most people would prefer not to lose the $2 dollars despite the equal possibility of winning $3. Typically their tradeoff is between wanting a $4 win in exchange for a $2 loss. In effect, they are valuing a dollar lost the same as two dollars gained – bang goes Hume’s law.

In which case how does progress happen when there is loss aversion? Surely there will an inertia from the loss aversion often outweighing the immediate gains from progress.

In a market, winners frequently succeed and losers suffer because there is no market mechanism to compensate losers. How often does a news story amount to the losers appealing to the government to protect them from a market decision which is against their interests?

Where politicians have some influence, the project may still go ahead despite the losses outweighing the gains. The political decider may favour the winners over the losers, the costs of opposing by the losers may outweigh the loss from the project (especially if there are a lot of small losers and a few huge winners), the losers may not realise they are being screwed and so on.

You can see one of the reasons why the evidence points to market economies progressing –with greater innovation and higher output – more than ones which are dominated by a centralised authority. You can also see how market decisions will be continually appealed to government to be overruled or moderated, not to mention the difficulties governments face when they are making changes. So while on conventional measures there may be progress of a kind, there may be considerable grumpiness from people offsetting the gains with double their losses.

And yet there is progress. The complexity is captured in a story about Ken Findlay, a feisty truckie and trade unionist. When the freezing works he worked at was closed and jobs were lost, he was a prominent and vociferous objector. Some years later he said  that the closure was the best thing which happened. I did not ask him why – alas he died last year, so I can’t ask him now. I am left with the puzzle of the apparent contradiction.

I doubt that his protests at the time were just on behalf of his devastated mates. Rather, he seems to have changed his mind or perhaps, it might be better to say, that his thinking evolved or that his subsequent experience was not as damaging as he feared.

Most of the experiments on which behavioural economic theory is based, perhaps inevitably, have very short time dimensions so they tell us little about how people’s thinking evolves through time. The one hint comes from Kahneman’s Thinking Fast, Thinking Slow. It suggests that we do not handle time in the way models of rational economic man assume.

This is all very troubling – behavioural economics is troubling to the rational thinker. Here is the best I can conclude at this stage.

First, the indicators we generally use to measure economic progress may not reflect improvements in the wellbeing of everyone (even after acknowledging their standard limitations).

Second, those who are hurt by change may be more hurt than those who benefit from it. We may ignore or discount the losers; sometimes we don’t even notice them.

Third, people may handle ‘progress’ differently in the long term from the short term. It is possible that many remember the short-term downsides and forget the long term upsides.

Not very strong conclusions, I’m afraid. Like so much of behavioural economics, the main conclusion is not to be too confident of conclusions dependent upon the traditional framework of the rational economic man.

The Dangers of Delusions of Grandeur

This is a column about MAGA – Make America Great Again. But as a prequel I scroll back sixty years to when I was teaching in England. I have fond memories of the students – bright and personable as they were. But their attitudes to England and the world left me uneasy. In the time of their great-grandparents – before the Great War – Britain and its empire had been the world hegemon. Those students persisted with the notion that their country was considerably more powerful than was warranted in the 1960s. They thought it had won the Second World War, discounting the impact of the Russian population and the American economy. They thought in terms of the British Empire (oops, Commonwealth) ignoring that the core element of India had gone AWOL, and that other elements – even New Zealand – were forging their own paths.

I concluded that there was considerable inertia in international attitudes over the generations but hoped that the Brits would steadily come to the realisation of their relative decline. I took comfort that the support of Edward Heath and Harold Wilson for the (now) European Union, and the outcome of the referendum in 1975 which favoured joining it, was evidence of Brits revising their perception. I recall, however, one of my students supporting joining the Union on the basis that it would benefit from British leadership – the EU as a kind of third British Empire.

Britain proved unable to lead the EU. Germany was bigger and had more weight; France, Italy and even Poland and Spain were only a little smaller. In 2016 the English and Welsh voted to leave and the Northern Irish and Scots voted to remain. Exactly why they voted as they did is complex but I heard in the campaigns echoes of the delusions of grandeur and that Britain could go it alone. Older voters tended to vote ‘leave’, and there was talk of reviving the British Commonwealth – yeah, right. (Of course it could go it alone at an economic cost, but its weight internationally would not increase.)

Britain’s hegemony was being displaced by the US’s. In 1950 the US produced around 27 percent of the world’s goods and services (measured in common prices – ‘purchasing power parity’). The next ones down were the Soviet Union at 7 percent and the United Kingdom at 6.5 percent. The rest of the world was desperate for US dollars because their inward-facing postwar reconstruction meant they had little to sell to the US. No other country was anywhere as near as militarily powerful, although the Soviet Union had just tested its first nuclear bomb in 1949. I do not know how to measure it, but cultural hegemony had shifted to the US too – think of Hollywood.

Seventy years later it is a very different world. China produces 19 percent of the world’s GDP, ahead of the US at 15 percent. The EU (without Britain) is fractionally behind also at 15 percent. India is at 7.5 percent and Japan at 3.7 percent. Further down, Indonesia, Brazil and Turkey join Russia and Britain in the 2 to 3 percent group. (The ten member states of ASEAN produce about 5.7 percent; Australia is about 1.0 percent, New Zealand a sixth of that.)

A caveat is that while China’s economy is bigger because of its larger population, its productivity is markedly lower and its discretionary surplus smaller. (However, its more authoritarian governance may find it easier to deploy its surplus for international purposes.)

Moreover, even today no other country is as militarily powerful as America with its global reach. But, as local wars demonstrate, other countries may challenge it in a region, while a US presence may change the balance of military forces as it does in Europe, the Middle East and Taiwan. None of the remaining military powers has a global reach. Even China’s military extends outside its immediate region only to protect its supply routes. Otherwise, it confines itself to its ‘region’ although, as boundary disputes with India and in the South China Sea (to use its most popular name) plus Taiwan indicate, others may have different views of what exactly is China’s region.

It could be argued that the US has not the commitment to exercise its global military reach. Nowadays it may be less willing to commit troops outside its borders and you may think its support to Ukraine has been less than wholehearted. But decades after 1956, Hungarians recalled what they thought was a betrayal when the West gave no significant support to their uprising.

Apparently the Pentagon is less confident that it can fight two major wars, a position underlined by Donald Trump who wants Europe to bear a greater share of the burden of confronting Russia, presumably to free up US military resources for other theatres.

(Because of the global use of English, US culture is still significant, but probably diminishing. Britain also punches above its weight culturally.)

MAGA is a reaction to this change. Observe the second A for ‘again’. It says America was once great but is no longer. However, its diagnosis is hardly convincing to the reflective observer. It explains the loss of greatness as a consequence of the failure of the leadership in Washington, typically for conspiratorial reasons rather than the structural reasons just outlined. It concludes that what is needed is a new leadership not beholden to the ‘deep state’ in Washington – enter Trump.

With one exception, Trump’s proposals to MAGA are unclear. He is promising to increase tariffs on imports, especially those from China. The Chinese economy appears to be in trouble. Possibly it has reached a similar stage to the Japanese economy in the 1990s, when its economy seems to have absorbed all the international technology it could and it stagnated for a number of decades.

But China aside, a 20 percent tariff on the rest of the world is likely to be extremely disruptive because there will be retaliation. A big change over the last 70 years is that in 1950 the US exported about 3 percent of its output; today the figure is more like 11 percent. The US is also vulnerable because of the international involvement of US corporations which could be subject to boycotts. (X and TELSA are already prominently mentioned.) How a global trade war will evolve can only be guessed, but it will be ugly – wars are. International output will fall, and unemployment rise.

A further complication is that the world institutional architecture was largely developed shortly after WWII, favouring the US. It has, with four others, a veto in the Security Council in effect castrating the United Nations. Its institutional power in the IMF and the World Bank reflects the international economy of 70 years ago. It has paralysed the workings of the WTO by refusing to approve judicial appointments to its appeal authority.

So international fora are not going to be much help. Yet under MAGA the US can only bully, not lead, the international community. My guess is that the consequence of any thuggery will be a further weakening of the long-term influence of the US as the rest of the world evolves institutions to deal with the bullying. It won’t be easy and it won’t be instant. It certainly won’t be easy for countries as small as New Zealand. Expect a realignment of our international connections.

Property rights – which enable decisions over tangible and intangible assets – are critical to an economy as Why Nations Fail pointed out.

Not just private property rights for, as we shall see, they are more complicated than that. Neoliberals argue that private property rights lead to the maximum economic prosperity; they used that to justify privatisation. Certainly, ambiguous property rights are likely to result in poor quality outcomes. But community property rights can be effective, as economic orthodoxy acknowledged when Elinor Ostrom was awarded a Nobel laureateship in 2009 for showing that the use of exhaustible resources by groups of people can be rational and prevent their depletion without either state intervention or markets with private property.

Pre-market Māori demonstrated that too. The seas around Northland were teaming with fish, even in the 1850s. The local hapu had various measures which sustained them. Following the breakdown in hapu authority, the seas became fished out.

The neoliberal misunderstanding was evident in the original formulation of ACT’s treaty principles proposal. Its second principle stated that the government should ‘protect all New Zealanders’ authority over their land and other property’. This was intended to be an updating of Article II of Te Tiriti, which actually stated that the Māori rangatiratanga would be preserved for ‘ratou wenua o ratou kainga me o ratou taonga katoa’, which might be translated as ‘their lands, their villages and all their treasured things’.

Two things. Minor for the purposes here, ‘ratou taonga katoa’ (all their treasured things) is wider than just property. Did ACT intend to downgrade the standing of te reo, despite the highest courts in the land determining that it is a taonga under Article II?

But second, the notion of rangatiratanga is not just about individual authority. Pre-market Māori did not have a notion of individual ownership of land and other resources. Those property rights were exercised communally.

This was barely understood by the first Europeans and led to many early misunderstandings, some of which persist to this day, for we are always tempted to anachronistically interpret the past by current standards. (The misunderstandings are well explored in the scholarly literature; I tried to summarise them in Chapters 4 and 5 of Not in Narrow Seas.)

(Those of a conspiratorial frame of mind may think that ACT was not ignorant but was trying to sneak into legislation a clause which the courts could interpret as upholding the principles in ACT’s Regulatory Standards Bill.)

Clearly, ACT’s second principle will not do, and sober official advice changed its manifesto promise to

          Rights of hapu and iwi Māori — the Crown recognises the rights that hapu and iwi had when they signed the Treaty/te Tiriti. The Crown will respect and protect those rights. Those rights differ from the rights everyone has a reasonable expectation to enjoy only when they are specified in Treaty settlements.

(ACT has lost interest in this revised second principle but is proceeding with the Regulatory Standards Bill.)

This still does not capture the essence of Article II of Te Tiriti. I’d have thought that the rights existed from the time of signing and that treaty settlements only recognised the existing rights rather than created them.

There is also a deep complication about what property rights refers to. It is not peculiar to Te Tiriti, so I begin with a contemporary example.

Suppose there was a proposal to establish a KFC in a suburban shopping centre. Even a neoliberal living, say, 100m away might object to its impact on the neighbourhood and join in the objection to its establishment. (In the case in mind, they were successful and the KFC was never established.) There is nothing among a property owner’s legal rights which entitles them to block the proposal. The opportunity to object arose from town-planning provisions such as in the Resource Management Act. But presumably the neoliberal thought there was some existing moral right to block a neighbour’s peaceable, if detrimental, activities.

(You can see why proposed changes to the RMA and the proposed fast track legislation are difficult. While they are intended to reduce the transaction costs of making decisions, they will also reduce some people’s ‘property rights’ while increasing those of others.)

We frequently see Māori claiming kaitiakitanga (guardianship) in their rohe, despite its ownership having been legally alienated. They are arguing that the rangatiratanga of Article II of Te Tiriti included stewardship rights and mana whenua was not alienated when ownership was transferred (whether justly or unjustly). They are not alone in their belief of kaitiakitanga rights. Greenies frequently invoke it; we are all greenies on occasions (as with the raising of the level of Lake Manapouri, even if we had never visited it and lived miles away).

ACT does not seem to have thought through these issues in its proposals, or perhaps neoliberals do not think they should be attended to (unless it’s about a KFC in their neighbourhood). But others do.

ACT has opened up a can of worms. The biggest worm in the property rights can is to what extent their existing distribution is just. (This is not quite the same issue as the inequality of the property rights.)

The respected libertarian philosopher Robert Nozick pointed out that if a distribution is ‘just’, the distribution of rights remains just following voluntary transactions. But what if the original position is not just, what if transactions are not voluntary? How can we treat the existing distribution as acceptable?

Was the distribution of land just even on 6 February 1840? As a reult of the Musket Wars much land involuntarily changed its rangatiratanga. Oral traditions report that there were involuntary land transfers following conquest even earlier. Was there ever a time when the distribution of land was just? Arguably the proto-Māori seized the land from the existing animal inhabitants, when they first arrived.

A practical resolution might be to say that the distribution on 6 February 1840 was acceptable in the governance of New Zealand. Even so, much of the subsequent alienation was not voluntary.

The tendency is to highlight the consequences of the New Zealand Wars – we do love heroics. Arguably, the 1865 Native Lands Act was far more destructive. It created the Māori Land Court, which converted Māori customary title into a title recognisable under law. Māori were not consulted about this legislation. British law was unable to deal effectively with collective (customary Māori ) ownership, so Māori practices were converted to individualised ownership. The creation of a commercial title with its individualisation pitted Māori against Māori, undermining the integrity of hapu. (Woody Guthrie sang ‘some rob you with a six-gun/some with a fountain pen.’) Here is a salutary reminder that property rights influence the way we organise society.

Nozick is ruled out. So how are we settle on an acceptable distribution of property rights? ACT’s Treaty Principles Bill is not an answer.

The current rise of populism challenges the way we think about people’s relationship to the economy.

We seem to be entering an era of populism, in which leadership in a democracy is based on preferences of the population which do not seem entirely rational nor serving their longer interests. The re-election of Donald Trump is just the latest example

Professionally, I found the British people’s voting for Brexit the most disturbing (52 percent voted to leave, 48 percent to remain, on a 72 percent turnout). There was a compelling case that the British economy would be damaged by Britain leaving the European Union (although not as quickly as some claimed). One might favour ‘Leave’ because it would give Britain more control over itself, for international economic intercourse compromises national sovereignty. But the tradeoff is that cutting back trade reduces economic prosperity. Much of the public chose to ignore the tradeoff when they voted. Subsequently they found that the sovereignty gains were small, while the British economy has performed badly. An increasing proportion of ‘leavers’ regret the decision to leave. The economic analysis proved correct.

Populism is sometimes characterised as ‘the people’ rejecting the ‘Establishment’. During the Brexit campaign there was a strong undercurrent that since the Establishment supported ‘Remain’, the policy must serve them to the detriment of ‘us’. They now know that closer British involvement with the European Union was beneficial to many of them too.

It is easy at this stage to dismiss people taking a strong line against the Establishment as ignorant or worse. Recall Hillary Clinton muttering that many of the Trump supporters were ‘deplorables’ and there will be equally dismissive explanations of those who voted for Trump’s second victory – ‘racists’, ‘sexists’, ‘fascists’ …

It might be wiser to recognise that these people have concerns which they may badly express, which they may badly diagnose, and for which they may have badly thought-through policy responses. But even so, those underlying concerns are real enough. There is no point in ignoring them and then being shocked at the following election when the holders again vote against the Establishment and even against their best long-term interests.

How often does one hear preaching rather than engaging with the audience? How often does one find that the preacher’s argument is self-serving? That does not mean that the argument is always wrong, the preacher is just not connecting. The case against Brexit was not wrong as we (almost) all know with hindsight; it was badly presented.

I’ll leave others to tell us about the populist vote which has returned Trump to power, and I’ll leave you to decide whether the opinions are self-serving or based on too narrow a perspective and information. Instead, here is a New Zealand example about how a government was not listening to even its own people.

In August 2023 Talbot Mills Research surveyed voters on their views on some non-economic issues. Four responses are revealing. The scores here are the percentage favourable less the percentage unfavourable by party voting intentions. The focus is on those intending to vote Labour but the equivalents for Green and All voting intenders are included for comparison.

Labour Greens All

Bilingual Road Signs 13% 56% 11%

Māori Health Authority 16% 58% 1%

Co-governance   10% 49% -5%

Māori Wards in Local Govt  -13% 25% -26%

There was not a lot of enthusiasm among Labour voters for their party’s policies, especially when you compare the Green responses. The survey took place a few months before the 2023 election, where the party ad lost half of its 2020 support. Presumably the majority of the Labour leavers had views more like the last column of all voters, who were even less enthusiastic.

One must conclude that the Labour Government seemed hardly to be listening to its own supporters – let alone the nation as a whole. One is reminded of a parallel instance under the Lange-Douglas Government, when a small group of senior cabinet ministers pursued (neoliberal) policies which were an anathema to the party supporters. A Talbot-Mills survey in August 1990 which asked questions about Labour’s economic policy is likely to have shown a similar lack of enthusiasm.

It was a time in which half the population had no increase in their real incomes between 1986 and 1998, twelve years later. Around a third had to wait twenty-odd years before they got an income boost. But there was nary a mention of their struggles by the experts and acolytes of the Establishment, whose incomes continued to rise under the neoliberal policies of the time. I leave it to the elite to reflect whether they should feel guilty about their neglect; the point here is that they were not listening.

What would we hear from the non-establishment were we to listen? I am hesitant to answer that question. It is just too easy for the opinionated to pretend to listen and report their personal prejudices. However, allow me to raise the possibility that rising material GDP does not always make consumers feel better off, despite our having been indoctrinated into assuming it does. GDP measures output, whether the output be goods or bads.

For example, when Europeans first arrived in New Zealand, they wanted produce like flax, timber and food. Maori increased their production in order to acquire guns and other European goods in exchange. GDP increased but the guns led to the chaos of the Musket Wars which devastated the Maori population. This extreme example reminds us that increased material possessions need not lift wellbeing.

It may be that increased material consumption and possessions in the first half of the post-war era was associated with people feeling better off. But that may be less true in the second half. Hence the turning to populist demagogues who promise better outcomes (even if the promises do not get fulfilled as in the case of Brexit and, as seems likely, with some of Trump’s promised policies).

It is possible that once consumers have met reasonable material needs – not all have – additional consumption is more concerned with esteem needs so that there are few realised gains from just keeping up with Jones. (The implication is that traditional theory which equates consumption with wellbeing no longer applies.)

The populist phenomenon may not be only economic. The Talbot-Mills survey explored cultural responses. Another possibility is that many people are finding the rate of change is accelerating and they are finding it increasingly difficult to cope. That may explain why populism is currently dominated by conservative parties in affluent economies – Boris Johnson’s Conservatives in Britain, Trump’s Republicans in the US, New Zealand’s most populist part in NZF led by Winston Peters. (MMP may disperse the populist capture of a single dominating party; I resist going down some interesting consequential paths.)

Whatever the reasons for the rise in populism – there are more – it presents a challenge to liberal democracy. The challenge will not be resolved by ignoring the underlying concerns until the run-up to the next election and calling their holders ‘deplorables’ when they vote against the Establishment.

Does the Autumn 2024 British budget point to a change in fiscal strategies?

Many countries found their fiscal position was unsustainable, following the 2008 Global Financial Crash.  Their public spending was well in excess of their public revenue and they had to borrow more heavily than lenders thought prudent. Almost unanimously, such countries tried to fiscally rebalance by cutting back their public spending rather than raising tax revenues. The poor and those on middle incomes bore the burden of adjustment.

In some ways the strategy, called Austerianism – a portmanteau word from austerity and Austrian economics – was surprising. Certainly the rich had been hard hit by the GFC but they had been the main beneficiaries of the financial boom which had caused it. Ironically, that boom was accompanied by the demand that governments should not get involved in regulating the financial markets, but when they crashed, the same financiers expected their governments to bail them out.

The Austerian policies which followed tend to protect the rich at the expense of the rest of the community. Rarely, for instance, did governments try to reduce the fiscal gap by raising the top tax rate or reducing the tax loopholes of the rich. Neoliberals seized the crisis to pursue their ambition of reducing the size of the state.

Not surprisingly, Austerian policies resulted in political turmoil. Yet they continued. Even the Ardern-Hipkins Government pursued them with the promise of no significant tax rises and a restrictive borrowing target which meant that public spending – including supporting the poor – was severely constrained. Less surprisingly, the Luxon-Willis regime is also broadly Austerian, as had been the Key-English regime. (The measures which we associate with Ruth Richardson were also Austerian.) Admittedly, all of them fudged around the margins – we shall see more fudging from this government.

The British Starmer-Reeves Government budget represents a major break from this approach. It faced a major fiscal imbalance inherited from the Conservative Government which it has just replaced. Its response has been to raise taxes and maintain public spending. (Its borrowing is coming down more slowly than the Austerians would want).

The Blair-Brown Government had left Britain’s government spending at just over 46 percent of GDP in 2011. The Conservative Governments which followed had squeezed the ratio to under 40 percent just before the Covid crisis. After, it rose to near 45 percent but the Conservatives planned to squeeze the ratio down to 42 percent by 2029. Labour announced spending plans which would have kept the ratio at 45 percent, not quite the Blair-Brown level, but nearly. ( Comparing country ratios is tricky because of institutional differences but I am pretty sure the British public spending ratio is effectively higher than New Zealand’s, which is reported at about 28 percent.)

I think it reasonable to assume that had the Conservatives returned to power, facing the same fiscal gap they would have cut government spending even further. British Labour is adjusting primarily through increased taxation. What it will further do while it is in power is conjectural. (The next Britiah election may not occur until 2029.). But the reasonable expectation is there will be further tax increases. British fiscal policy has entered a new era.

Of course it may not work. Economic policies have a practice of being blown off course by events external to the economy. Often, the forecasts prove too optimistic or other events occur (in New Zealand’s case we seem to be building up considerable expenditure commitments to compensate for some of the dreadful things that past governments did – often by neglect, sometimes a long time ago). And there is always the possibility that lenders will raise the cost of borrowing. In the past, governments with similar intentions have often had to retrench.

There was widespread disappointment that the economy is expected to be growing slightly more slowly under the Reeves October budget projections than under the last Conservative budget in March. But there may have been new data indicating the economy has been tracking lower than the March forecast. Moreover, one expects some slowdown if a fiscal hole has to be addressed.

But third, we are naive if we think a single budget can make a major change to the long-term economic growth rate (if only it were that easy). The sorts of spending policies which Labour hopes will work, like on infrastructure and industry targeting, will take years to come onstream. That is why that sort of spending is among the first items to be cut under an Austerian budget. So there always seems to be an infrastructure deficit. As this government is telling us; it will be lucky if any of its infrastructure projects have any impact on the growth rate before the next election.

(It’s hard to identify a change in trend, given there are so many possible endpoints and cycles. I remain uncertain whether there was a slowdown after about 2008, and why.)

If I was advising the British Government, I’d suggest they would get a quicker boost to their growth rate by negotiating a better trading interface with the European Union, reducing the extraordinary transaction costs that Brexit has generated. A budget is not the only place for policies which can also substantially affect economic performance. 

He’s done it. The re-election of Donald Trump as US president is a massive shift in US and global politics. Cool heads and steely-eyes are called for at momentous times such as this, but those steely eyes would have to be closed tight not to see this is a moment that will go down in history. For a man who wrongly claims so many things he does are “the greatest ever”, this time he’s right. It’s one of the great political comebacks.

What has he achieved? He is the only politician other than Grover Cleveland in 1982, to lose and then win-back the US presidency. Americans have historically dispensed with yesterday’s presidents. Trump has overcome that American instinct. He’s also the first convicted felon to be elected as president. In May this year he was found guilty on 34 charges in a scheme to illegally influence the 2016 election by paying hush money to a former porn star, who says the two had sex. Finally, he’s won in a way that most politicians and political observers, just a decade or less ago, would have said was impossible. He refused to concede defeat after an election loss and encouraged an insurrection. He has called his opponent “vermin” and an “idiot” (he mouthed that Kamala Harris is a “bitch” just a couple of days ago), called independent media “the enemy of the people”, has been accused of assault by at least 26 women, many of his former White House staff have publicly said he’s unfit for office, and one of them, his former Chief of Staff, revealed Trump had told him “Hitler did some good things”. The laws of political physics in a democracy have been turned upside down.

And it’s a comprehensive victory; he’s won the popular vote and looks to be winning the electoral college at a canter. Perhaps, if I try to apply that cool head, this election will come to be seen in more traditional terms – the same kind of vote against incumbency we’ve seen in Britain, Germany, Japan and of course New Zealand in the past year. Perhaps it’s a more normal cry for economic help after rampant inflation. But you only have to have heard Trump’s own words – let alone the words of his nearest and dearest such as Stephen Miller and Elon Musk – to think it’s more than that. Trump promised just last week that he would be a protector of women, “whether they like it or not”. It’s reasonable to expect him to act in his own best interests and to re-arrange the furniture of US politics, whether Americans like it or not.

So the question becomes: what does he do with this remarkable victory? What will the Make America Great Again (MAGA) movement do with power second time round? The truth is, we really don’t know. When you hear commentary from those in and around his camp and those who know them, there are factions, as there are in any movement. Some argue that Trump simply wanted to remove the stain of “loser” from his name and once he is sated with the revenge he has openly says he wants, others will do the hard work of running the country. Others say he remains the strongman at MAGA’s heart. The power struggle now around Trump is likely to be immense, as it is with all ‘strongman’ leaders.

Whichever way the castle politics go, I use the word “strongman” intentionally. Because for me the most remarkable – and terrifying – part of this election is that America has voted for a shift away from what has been conventional democracy since at least the end of World War II. In the wake of two world wars and the Great Depression, western leaders knew that bombast, extreme nationalism and authoritarian tones would not be tolerated by a population who had lost so much in fights against tyranny, oligarchies and fascism. Guardrails were built to protect us from horrors. That has clearly changed. Generations more distant from that reality seem to have softened their stance and are less wed to what have become the norms of democracy. As many others have warned, democracy was on the ticket this election and without the “grown-ups in the room” as there were in Trump’s first term and with learned experience, the extremists around Trump will have more power. Many of them see a liberal democracy as a weakness. They prefer authoritarian regimes and oligarchies. Do you think Elon Musk is in the tent to serve the American people? Or his own business interests and the interests of the wealthy elite who think they should just be allowed to get on with making the big decisions? Who needs “we, the people”?

Because let’s be clear about one thing – while this is a move right for the US, it is not a win for conservatives. Sure, fundamentalist Christians will get their dues and abortion rights will be diminished, but conservatives value solidity, security, sound institutions.

If you read my analysis piece last week, you’ll have seen I quoted a New York Times/Sienna College poll of the battleground states that showed 40% of voters wanted a president who “”promises to fundamentally change America”. Fully 14% wanted the system “torn down”. (It also may help explain this result, somewhat).

It seems like they will have their way and we’re about to embark on a new era of US politics – and if the US shifts on its orbit that much, it will pull the tide of politics with it all over the world.

With a compliant Supreme Court and Senate, and perhaps even the House of Representatives, for at least two years Trump and his advisors will have immense power. What will they do with it?

An isolationist America looks inevitable – closed borders, protectionist trade policies, a withdrawal of military engagement. Under Trump, expect America to be closer to the strongman countries of the world than its traditional allies, including New Zealand. Say a prayer for the people of Ukraine, and even of Taiwan, tonight. And the New Zealand government will have to think long and hard about its moves to get closer to the US and the importance of our independent foreign policy in a new and volatile diplomatic world. It’s easy to imagine more traditional democracies forming a closer alliance apart from the US and New Zealand becoming even more reliant on Asia for trade.

An anti-immigrant stance has always been a powerful tool in politics of most kinds, and Trump has leant into that more than any other policy platform, promising to protect jobs in the Midwest and southwest, with a strong strain of xenophobia. He has promised mass deportations ranging from a couple of million to maybe 50 million. Either way, the upheaval across the US will be huge and painful, because legal and illegal immigrants do not fit into nice, separate boxes.

Tariffs and tax cuts? Of course, but how much and on/for whom, we don’t know. But the march of globalization, already stalled in recent years, will now be turned around.

Trump’s win also punches a hole in the balloon of what’s been called woke politics. As muddled and weaponized as that word has become, you know what I mean. Liberal, urban activists will have to reckon with the reality that they have not won the argument with the majority. The Democrats backed Black Lives Matter and other minority rights movements, spoke of a more liberal border policy, acted on climate change. But it’s been clear the majority of voting Americans aren’t buying what they’re selling; the Democrats’ progressive “squad” couldn’t even get key members through their primaries as the Democrats realized their values would not win elections. Kamala Harris in her short campaign played the centre – said nothing about paid-parental leave, student loan forgiveness, or minority rights. Her big policy play was a tax cut. Yet again, American have elected Trump over a woman. Centre-left parties which want to win elections will be concentrating much more on that ‘centre’ psrt, thinking more about economic and class politics than identity politics.

Precisely because Donald Trump is so volatile, so driven by ego and self-interest and so little by policy and ideology, it’s impossible to know what the next four years hold. Will the change merely be big or will he “tear it all down”? Either way it will undoubtedly be a test for democracy as we’ve known it and the institutions we’ve relied on for generations. We’ll get to see just how strong those guardrails are.

In 1992 James Carville, Bill Clinton’s lead strategist, hung a sign on the wall of the Democratic candidate’s campaign office in Little Rock, Arkansas. It had three lines on it to focus the team on the key vote-swinging issues and one of those lines would become so famous it’s turned into a political cliché. The line read, ‘It’s the Economy, stupid’. It stuck for good reason. Elections are almost always about the economy. It’s atop most of the polls asking voters their main issue for the 2024 US Presidential election as well. Just perhaps not in a way you think.

We’ll get to that shortly because it’s the point of this column. But first let’s just be clear why the economy matters so much. Take a look at this chart recently released by Gallup:

sA you can see, if people lack confidence in the economy, incumbents are punished. Any politician knows economic confidence and election wins go hand-in-hand and if Kamala Harris loses next week one of the main reasons will be her failure to sell a clear economic recovery plan and the image many voters have of Trump as a top politicians, rammed home by his name-heavy real estate business and as he climbed off that helicopter and fired people week after week in his top-rating reality TV show, The Apprentice.

But what is the actual state of the US economy and why do so many Americans lack confidence in it? Well, the aftermath of the Covid pandemic, Russia’s invasion of Ukraine and the slowing of China’s economy (amongst other things) have meant high prices around the world in the past few years, including in America. Inflation peaked at a 40-year high of 9.1% in 2022 and even though it’s back down to 2.4% and annual growth is back to 2.8%. Petrol prices are easing from $5 highs, but are stubbornly holding above $3/gallon contrary to forecasts. Unemployment is 4.1%.

These could be winning statistics in most election years, but Americans are coming off an extreme few years. That 9% inflation meant prices overall are up nearly 20% since Joe Biden became president. Unemployment had passed 14 percent in 2022. All that insecurity is still a fresh memory and incomes haven’t caught up with that inflation spike. And most Americans have no sense of the global moment they’re caught in; they expect the president to have protected them better.

But that’s the surface economic debate and it obscures what many people are really saying when they tell pollsters the economy and the cost of living are their main issues this election. Because here’s the rub: I think when many people fret about the economy they’re taking the longer view.

It reflects one of the other pieces of advice Carville hung on that Little Rock wall back in 1992. One that’s typically forgotten but worth remembering just as much as ‘It’s the economy, stupid’. That other line? “Change vs more of the same”.

Ah yes, change. It’s a complex one, but I think the politics of it are pretty clear. Many people have lost trust in their public institutions and they are demanding change. In fact they have been since the turn of the century. They’re fed up no-one’s doing nuthin’ and this inflation, it’s really just the latest in a long line of economic disappointments.

Back in May, the New York Times and Siena polled the battleground states of Arizona, Georgia, Michigan,  Nevada, Pennsylvania, and Wisconsin.

Overall, a massive 40% said they’d prefer a president who “promises to fundamentally change America”. Asked if they thought the political and economic system in America needs to change, 55% said “the system needs major changes”, almost double the 27% who backed “minor changes”. But guess what? 14% said “the system needs to be torn down entirely”. Few want the status quo.

At that stage it was a Biden v Trump race and 13% said Biden would make “major changes” while 45% say Trump would. For many, it almost doesn’t matter what the changes are. They just want different. Anything but ‘more of the same’.

Many people, especially middle-aged and older middle- and working-class people who have seen their way of life and financial options deteriorate over a generation or two, are feeling less wealthy, more alienated and disrespected. Which is bad news for any incumbent. And it backs up another piece of data I saw at a talk this week by University of Glasgow Politics Professor Chris Carman. He pointed to research showing that in 1980 white men without a college degree earned around 10% above the average full-time income. But as Asians, women, Black, and Hispanics have all seen their income get closer to, or surpass the average, those white men without a college education now earn around 10 percent below the average income.

Their role as breadwinner, their status and pride, their ability to own a home and provide for their family and hold their head up high, has been eroded. And the Democrats seem to have lost their ability to talk to them and their working/middle class families. Is it any wonder then that they respond to a politician such as Trump, who sounds like them, reflects their frustration, and wants to get things back to when their America was great? Is it any wonder they get so angry about immigration and trade deals because, while it’s not as simple as Trump makes it sounds, it’s pretty orthodox economics to say high immigration levels do suppress wages, especially in lower paying jobs. Is it any wonder they lash out at “change” in all its forms when they’re on the losing side, while also wanting more change so that they can find their feet again. To my mind, the culture wars and the economic wars are deeply intertwined. Don’t get me wrong, there is a deep strain of prejudice in parts of the US, a conservative form of Christianity that asks for a disproportionate focus on abortion and sexuality, and a level of mis and disinformation that runs mind-bogglingly deep.

But at the heart of the election and the polls showing the economy as far and away the biggest issue, is generations of social and economic change that has left too many people behind. There’s a loss of trust in public institutions and a sense of hopelessness that means too many are comfortable that democracy is on the ballot this election; because they feel so betrayed, they want to burn the whole thing down.

If Trump wins, the disillusioned and bitter may get their way. If Harris wins, she will have the deep-seated challenge of living up to her promise to be the president for all. Of actually doing something about the cause of her country’s polarisation rather than the symptoms. Because you’d really have to be stupid not to see that we are running out of time to save the idea of America and the strong, hopeful middle class that sustains it.

Back in May, the New York Times and Siena polled the battleground states of Arizona, Georgia, Michigan,  Nevada, Pennsylvania, and Wisconsin.

Overall, a massive 40% said they’d prefer a president who “promises to fundamentally change America”. Asked if they thought the political and economic system in America needs to change, 55% said “the system needs major changes”, almost double the 27% who backed “minor changes”. But guess what? 14% said “the system needs to be torn down entirely”. Few want the status quo.

At that stage it was a Biden v Trump race and 13% said Biden would make “major changes” while 45% say Trump would. For many, it almost doesn’t matter what the changes are. They just want different.

Many people, especially middle-aged and older middle- and working-class people who have seen their way of life and financial options deteriorate over a generation or two, are feeling less wealthy and more frustrated. Which is bad news for any incumbent. And it backs up another piece of data I saw at a talk this week by University of Glasgow Politics Professor Chris Carman. He pointed to research showing that in 1980 white men without a college degree earned around 10% above the average full-time income. But as Asians, women, Black, and Hispanics have all seen their income get closer to, or surpass the average, those white men without a college education now earn around 10 percent below the average income.

Their role as breadwinner, their status and pride, their ability to own a home and provide for their family and hold their head up high, has been eroded. And the Democrats seem to have lost their ability to talk to them and their working/middle class families. Is it any wonder then that they respond to a politician such as Trump, who sounds like them, reflects their frustration, and wants to get things back to when their America was great? Is it any wonder they get so angry about immigration and trade deals because, while it’s not as simple as Trump makes it sounds, it’s pretty orthodox economics to say high immigration levels do suppress wages, especially in lower paying jobs. Is it any wonder they lash out at “change” in all its forms when they’re on the losing side, while also wanting more change so that they can find their feet again. To my mind, the culture wars and the economic wars are deeply intertwined. Don’t get me wrong, there is a deep strain of prejudice in parts of the US, a conservative form of Christianity that asks for a disproportionate focus on abortion and sexuality, and a level of mis and disinformation that runs mind-bogglingly deep.

But at the heart of the election and the polls showing the economy as far and away the biggest issue, is generations of social and economic change that has left too many people behind. There’s a loss of trust in public institutions and a sense of hopelessness that means too many are comfortable that democracy is on the ballot this election; because they feel so betrayed, they want to burn the whole thing down.

If Trump wins, the disillusioned and bitter may get their way. If Harris wins, she will have the deep-seated challenge of living up to her promise to be the president for all. Of actually doing something about the cause of her country’s polarisation rather than the symptoms. Because you’d really have to be stupid not to see that we are running out of time to save the idea of America and the strong, hopeful middle class that sustains it.

A new book challenges how we need to think about technological innovation.

Last week’s column mentioned the three 2024 Nobel laureates in economics. The column focused only on the 2012 book Why Nations Fail by Daron Acemoglu and James Robinson with little reference to Simon Johnson, although the three have worked closely together for about 30 years. Johnson published last year, with Acemoglu, a 599-page book: Power and Politics: Our Thousand-Year Struggle Over Technology and Prosperity.

Any book covering a millennium is going to be selective, with some of its examples contested. Nevertheless, this one’s basic thesis is uncontestable: technological innovation is not always beneficial and often favours the powerful.

Economics tends to treat technology as beneficial, probably because of Bob Solow’s finding some 70 years ago that it was not possible to explain most of (per capita) economic growth by additional capital. He labelled the gap – the coefficient of ignorance which explained 80 percent of rising labour productivity – ‘technological change’, saying it was ‘a shorthand expression for any kind of shift in the production function’ including ‘slowdowns, speedups, improvements in the education of the labour force, and all sorts of things’. When we are thinking about aggregate (market) GDP we should also include shifts into the market as when natural resources are depleted, subsistence farming becomes commercial farming and rising household productivity shifts housework and houseworkers into the market.

Lumping this miscellany into ‘technology’ is confusing. So to first principles. Joan Robinson defines technology as ‘blueprints’ – a description of how things can be done. In order to be of practical use, a blueprint has to be imbedded in an artefact (physical capital) or in how people do things (human capital). Not all discovered blueprints are adopted. Many are never used or are discarded because they do not contribute to profitability. (Their adoption by the non-market economy and society as a whole is even more mysterious.)

This focus on aggregate market output (GDP) plays down technology’s transformational role. Electricity and the internal combustion engine may have had major impacts on GDP, but their impacts on the lives we lead has been even more extraordinary. Without them we would be poorer, but we would also lead very different lives. Conversely fertility regulation technologies hardly merit measuring their impact on output, but they have transformed the lives of both women and men.

We tend to assume that if something contributes to aggregate output (GDP), it is beneficial to humankind. Of course that is not totally true – think of climate change, smoking and weapons – and economists have given much thought to explain when and why it is not. Economic ‘bads’ (and externalities) are a critical feature of economic analysis.

Acemoglu and Johnson are saying more. I skipped over how we identify the blueprints. Increasingly they are the result of major financial outlays. The evidence suggests that locating genuinely novel (commercial) technologies is becoming increasingly expensive – or as economists put it euphemistically, the ‘productivity of research is falling’. So who makes the investment in research decisions?

The book argues that the impact of new technologies on human welfare depends crucially on social choices about how those innovations are used. Those choices are usually determined by those who hold power. In recent decades the choices have been increasingly steered by tech companies and venture capitalists in terms of profitability rather than social wellbeing.

Thus the effort for new pharmaceuticals is towards those who can pay rather than maximum life enhancing, so we put less into researching ways of medication for those with high mortality and morbidity in poor economies. (A bizarre illustration was that American medicine was much slower to adopt lithium chloride for managing bipolar mood swings than European medicine because the chemical was not patentable so there was no commercial incentive to encourage American doctors to prescribe it.)

The book suggests that, in particular, currently digital technologies and artificial intelligence are increasing inequality while undermining democracy through excessive automation, mass data collection, and intrusive surveillance.

Acemoglu has done a lot of work on the impact of robots, pointing out that the new technologies aim to replace workers rather than complement them. That’s the way our system operates. The authors argue that democracies must ensure that the proceeds of technological waves are more generally shared among their populations. They say there are three things that need to be done.

First, the automatic technology-equals-progress narrative has to be challenged as a convenient myth propagated by a huge industry and its acolytes in government, the media and academia even though it is not always true.

Second, there is a need to cultivate and foster countervailing powers including civil society organisations, activists and trade unions.

Third, there is a need for technically informed policy proposals that supply a steady flow of ideas aimed at improving human wellbeing rather than exclusively targeting private profit.

The book also contains an interesting discussion on avoiding technologies which replace workers and devising ones which complement and empower them instead.

You may be surprised at how progressive (or impractical, if you are of a different political temperament) these Nobel laureates are. It is a reminder that the top of the economic profession reflects much wider political spectrum than the New Zealand one.

New Zealand economics is also imitative. Rather than adopting (or ignoring) the Acemoglu-Johnson-Robinson recommendations, New Zealand needs to apply them to local conditions. Since most – say, 99.7% – of the world’s research (blueprint generation) occurs overseas, our main task is to adapt what is available.

That does not mean we should do no research. Local research is a critical part of the process of effective importing and adapting new technologies. If, as a consequence, New Zealand researchers do some exceptional internationally innovative work, we are twice blessed.

This changes our research strategy. Instead of bewailing that New Zealand does not produce enough commercial blueprints, we need to evaluate it by how successful it is at importing and transferring the internationally generated blueprints here. (Medicine is an excellent example of our success at importing new technologies.) We need to move our approach from its (not very successful) narrow commercial focus to a whole-of-society approach.

While adapting we need to keep in mind the Acemoglu-Johnson reservation that the new inventions are biased towards some groups over others, and we may want to direct them differently.

Our public funding is far too centralised. Why Nations Fail argued that it was the decentralisation in an inclusive society which enabled effective innovation. We have not reached the stage where Stalin’s directive to pursue Lysenkoism and ignore Darwinism set back Soviet biology for generations. We came close to it when the Rogernomes closed down empirical economics research because its results disagreed with them. It has crippled New Zealand economics to this day. Outsiders would be surprised how little of our economic policy public discussion is evidenced based.

Each year the Taxpayers’ Union highlights bizarre ‘research’ grants from the Royal Society’s Marsden Fund. They would be amusing if they were not diverting funds from more valuable activities. They are not at the Lysenkoism level, but suggest that some of members of the grant panels are chosen for their ideology rather than competence. My guess is that there are objectively worthier projects among those that the ideological and non-competent rejected.

Power and Politics: Our Thousand-Year Struggle Over Technology and Prosperity challenges us to think more carefully and creatively about technology policy. It is very unlikely there is any grant funding to do this.